Urban Water Security Research Alliance

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1 Urban Water Security Research Alliance Externality Analysis for Water Management Peter Daniels and Madeleine Porter Total Water Cycle Management Planning Project 15 September 2011

2 Externality Analysis AIM: To provide a comprehensive review of existing research and valuation data into the identification and economic assessment of externalities pertinent to the adoption of five different water supply options under consideration in SEQ. The water supply options considered include: stormwater harvesting rainwater tanks centralised wastewater recycling dams desalination

3 This Presentation This paper will present a short overview of results from the study A short overview of the methodology Specifically focused on the externalities of rainwater tanks

4 Background Externalities: effects that are not taken into account directly in market-place transactions. Our Task: compilation and presentation of the background information required to prepare basic externality analyses to supplement and strengthen the assessment of sustainable water management options.

5 Justification Allows a comprehensive assessment of the consequences of resource management strategies across communities and over the long-term It is necessary to consider both private financial costs and benefits, and other less direct, but often very significant impacts on human welfare

6 Methodology STEP 1 Define scenarios to assess in terms of water system options STEP 2 Identify the main externalities associated with each strategic water option STEP 3 Quantify (usually in biophysical terms) each externality generated per unit water service from that option STEP 4 Value each externality per unit quantity impact SOURCE: diverse range of existing environmental economic research and values Converted to $AUD 2010 based on historical exchange rates and Gross Domestic Product (GDP) implicit price deflators

7 Methodology STEP 5. Calculate each externality s cost or benefit per unit service change for each option For each option (e.g. wastewater recycling), calculate each externality type s (e.g. nitrogen) cost/benefit per unit water service change STEP 6. Calculate each externality s cost or benefit from the total planned change in water service for each option For each option (e.g. wastewater recycling), calculate the cost/benefit value of the total planned change in water service STEP 7. Incorporate the externality values into the decision-making process

8 Results Rainwater Tanks

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10 Negative Externalities

11 Manufacturing Impact will depend upon materials, energy sources and processes used. Often requires the significant input of fossil fuels. Can result in releases of various noxious chemicals into the atmosphere (e.g. SOx and NOx when manufacturing concrete tanks)

12 Use May impinge on the aesthetics and useable space May pose a drowning risk Can provide breeding sites for disease vectors such as mosquitoes

13 Use and Distribution HEALTH RISKS Possible provision of insect vector breeding grounds Possible contamination with pathogens (originating from roof-top runoff) Catchment surfaces can also be a source of heavy metals and organic substances. Long-term exposure may be harmful. Chemical contaminants such as pesticides, herbicides, biocides, organohalogens, and petroleum hydrocarbons may also be present. However there is a variation in scientific and medical opinion within the literature as to the severity of these risks.

14 Use and Distribution Rainwater tanks can be relatively energy intensive Energy intensity of water tanks also vary greatly depending on the pump type and size, end-uses and the location and layout of the tank system The most common type of pump used in household water tanks is a fixed speed pump utilise equivalent amounts of power regardless of the volume of water being distributed inefficient

15 Positive Externalities Reduce reliance on mains water use by up to 50% significant economic savings from reduced mains water. Diversify the water supply system and create inbuilt resilience Defer large scale water infrastructure

16 Use Sediment and nutrient loads to oceans and waterways may be significantly reduced Estimates for the reduction of phosphorus loads by 68%. Reduced peak stormwater flows, less frequent overloading of sewer systems and overflows

17 Use Mitigate the effects that water restrictions have on lifestyle, amenity and property values Enable people to continue with small scale productive activities Promoting awareness of sustainable water stewardship Diversify the water supply system and create inbuilt resilience

18 Values

19 Values (a short selection) GREENHOUSE GAS EMISSIONS (CO 2 only, $/t CO 2 ) 2010 AU $ CPRS prices between $23 t/ CO 2 (24.15) and $32t/ CO 2 (33.6) at the start of the scheme, the government considers a price cap of $40 t/ CO 2 (42) is appropriate in balancing these requirements. WATER QUALITY Water Quality (per trip) 2010 AU $0.89, Hypothetical water quality improvements lead 1.3% increases in trip frequency. Consumer surplus due to water quality improvements was estimated to be 0.48 (0.89) per trip or 5.81/person (10.81)

20 Ecosystem and Biodiversity ECOSYSTEM Ecosystem Improvement to Flows 2010 AU$57.54, 30.4 AU$42 (57.54) annual increase in the household cost of water for an improvement in river flows from no to some rivers and from some to all rivers AU$22 (30.4) BIODIVERSITY Biodiversity Endangered Species (unspecified) , 6.4 WTP $24 (30.7) (increase in household water prices) to reduce habitat loss for 5 species, or $5 (6.4) per uncommon species (AU$, 2001)

21 Production Production - Commercial Fishing 2010 AU $4.68mill Taylor (2002), value of commercial fishing in Moreton Bay $40M p.a. (46,800,000) Non-use values 2010 AU $12.79 WTP $10 (12.79) (increase in household water prices) for a 10% reduction in household water use ($AU, 2001)

22 Recreation Recreation - Rivers 2010 AU $29.38 Walpole (1990), WRP average $23.69 (29.38) per household per visit for recreation at river sites in northern Victoria (2002, AU$) Non-use values Non-use Values Rivers 2010 AU $16.26, Values associated with the Rakaia River (NZ): health of in-stream river flows Option Price: $17.60 (16.26) and the Preservation Price: $17.38 (16.05) (NZ$ per household per year)

23 Amenity Amenity WTP for Waterway Restoration 2010 AU $0.46 Robinson et al. (2002), residents of Bremer River in SEQ WTP $0.37 (0.46) per person p.a. (2002 AU$) to increase total length of the river with a very good appearance by 1%

24 Health 2010 AU $ Cost of Illness: US$ 258 (1992) for an average emergency room visit 2010 AU $ Cost of Illness: each restricted activity day due to illness is worth on average $58 (US, 1992)

25 Next Steps If the modelling data was available and accessible, the methodology could continue through to quantification and comparison stages In the next phase of this research, this data will be available

26 Discussion It is quite rare to see the full-scaled adoption of private and external costs and benefits into economic decision-making frameworks This methodology and associated reports are unique in providing a systematic guide to externality analysis and its incorporation in strategic decision-making

27 Limitations Constrained by a dearth of local studies Data limitations affecting the efficacy of this study included: Lack of knowledge about biodiversity and ecosystem impacts Externality and impact research is often weighted towards the political agendas Lack of data on how water servicing options impact indigenous communities. Pronounced paucity of research and data on the decommissioning impacts of all supply options reviewed. General lack of published life cycle assessments (LCA) Should be acknowledged in the application of the research results

28 Conclusions Externalities have very real and significant impacts on community well-being This paper presents some indicative results for rainwater tanks derived from a detailed survey and review of the externalities, and associated costs and benefits Provides water managers, scientists, and practitioners with a detailed reference to help incorporate the full range of costs and benefits into their option and scenario assessment and decision-making

29 Conclusions (continued) Externality analysis provides a more systematic and comprehensive inputs to guide decision-making Failure to factor in externalities may lead to the misallocation of resources and increased levels of damage to society and the natural environment This study is unique in providing a systematic guide to externality analysis and its incorporation in strategic decision-making for natural resources Direct application to the SEQ context is constrained by a dearth of local studies

30 Up Next Application of the full methodology to TWCM planning scenario in Moreton Bay Regional Council Demonstrating its use through exploration of identified alternative supply options rainwater tanks, water recycling and stormwater harvesting Combining this methodology with modeling data from other UWSRA team members

31 Urban Water Security Research Alliance THANK YOU